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Regulators to Goldman: ‘Living Will’ Falls Short of Dodd-Frank Provision

Improvements in the bank’s plan on a potential bankruptcy plan noted, but shortcomings said to remain

Goldman Sachs was told Wednesday by federal regulators that the bank’s plan detailing how it would go through a potential bankruptcy fell short of what is needed.
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Goldman’s letter from the FDIC

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Regulators ordered five U.S. banks to make significant revisions to their so-called living wills by Oct. 1 or face potential regulatory sections. Regulators also saw weaknesses in plans from two other banks and shortcomings in a third.

The Federal Deposit Insurance Corp. said Wednesday that it doesn’t think the bank’s so-called living will meets the requirements of the 2010 Dodd-Frank law. The Federal Reserve stopped short of deeming Goldman’s plan “not credible,” but also identified weaknesses that must be addressed.

But because the two regulators didn’t jointly find the plan missed the mark, Goldman won’t face the more stringent requirements, including higher capital requirements and limits on growth and certain activities,that could be imposed on other big banks if they don’t improve their wills later this year. The FDIC and the Fed instead said Goldman must address its plan’s shortcomings in its 2017 submission.

More on Living Wills

The regulators said Goldman fell short on its process for determining how much liquidity its various units would need to sustain themselves once their parent filed for bankruptcy protection, and that its plan to wind down its portfolio of derivatives “lacked specificity.”

The regulators also found issues with the way the bank would escalate information to senior executives and board members as its troubles deepened, and expressed doubts that Goldman would be able to pull off a proposed recapitalization in the time frame the firm suggested.

“In reviewing the 2015 plan, the agencies noted improvements over prior resolution plan submissions” of Goldman, the regulators wrote in a letter addressed to
Lloyd Blankfein,
Goldman’s chairman and chief executive. “Nonetheless, the agencies have identified shortcomings in the 2015 plan.”

The regulators’ review is the latest chapter in a continuing discussion since the 2008 financial crisis about whether the largest banks add to overall financial instability or help contain it in times of economic stress.

Goldman’s plan, which it submitted last summer, detailed what it would do in a worst-case scenario to collapse without needing taxpayer assistance. The bank said that in an emergency, it would seek to sell or wind down its subsidiaries in an orderly fashion, avoiding a fire sale, following the bankruptcy of its parent company.

“We believe that significant progress has been made in ensuring both the resiliency and the resolvability of the firm,” Goldman said in a statement. “We look forward to working with regulators to further improve our plan so that both the Fed and the FDIC are comfortable that we could resolve the firm in a manner fully consistent with the Dodd-Frank Act.”